Editorial comment

On 11th June BP published its Statistical Review of World Energy for 2008. This annual report is essential reading for anyone involved in the energy industry and an indispensable source of facts and figures for executives, academics and, of course, the media.

On 11th June BP published its Statistical Review of World Energy for 2008. This annual report is essential reading for anyone involved in the energy industry and an indispensable source of facts and figures for executives, academics and, of course, the media. The picture presented in the 2008 report is naturally a highly complicated one, but it is not, despite what many might expect, pessimistic about the future.

Most importantly, the review refutes the popular idea that oil is running out fast. Tony Hayward, BP’s CEO, rejects ‘peak oil’ theory and the Review claims that the world has enough proven oil reserves to last 40 years, and an additional 60 years worth of natural gas. According to Hayward ‘when it comes to producing oil, the problems are above ground, not below it. They are not geological, but political.’ In other words, the oil is there if we want it, but we need to overcome the increasing resource nationalism in certain parts of the world, and to open up areas such as the Arctic and deep water sites offshore in the Gulf of Mexico, if we want to get at it. Hayward also dismissed the idea that current high prices are being caused by speculators, seeing the economic fundamentals of supply and demand as the driving forces in the problem. Beyond this the BP report showed that, despite strong growth, alternative energy sources still make up only a very small fraction of the global energy mix. Consequently the world will be dependent on fossil fuels for a long time to come.

The issues discussed in the review are of course of particular interest to those involved in the oil and gas industry, but the ramifications of the global energy situation are being felt by everyone everywhere in the world right now. Here in the UK, for example, the government has estimated that 2.5 million households are now living in ‘fuel poverty’ (defined as when more than 10% of a household’s income is spent on fuel bills). Public protests over the cost of fuel are also becoming an increasingly common occurrence on our roads. Meanwhile the spiralling food prices that have prompted riots in many parts of the world are at least partially the result of increased use of food crops for biofuels (an issue that was the cause of some consternation at the UN summit in Rome recently). How can these complex problems be solved? Hayward’s answer is to let the markets deal with the crisis: ‘the evidence is that where markets are allowed to operate, they do work. That is what the data in the Review show. And that is the real source of hope for the future.’

The cost of oil shows no signs of stabilising; Goldman Sachs has warned that it could reach US$ 200/bbl in just six months, while Gazprom’s chief executive Alexei Miller sees the price at US$ 250/bbl by the end of 2009. The choices made by governments, producers and consumers will all be critical in the coming months and years. Whether any of the apocalyptic predictions of the how high the price of oil will go will prove true or not cannot be known for certain; one thing the BP Review does prove to us however is that, when it comes to solving the world’s energy problems, there is a way, but we must all work harder to supply the will.